The government's recent decision to use most of the gas for domestic consumption is likely to dampen prospects for investment by foreign companies who want to maximize exports rather than feed a limited domestic market.
Another wrinkle is that while the discovery of some 30 trillion cubic feet of natural gas in two major fields in 2009-10 -- with much more expected -- will transform the economy of a country long dependent on energy imports, Israel's isolation in the Middle East could impede its export potential.
After two years of debate, Prime Minister Binyamin Netanyahu's cabinet decided 60 percent of Israel's gas reserves will be used for domestic consumption, mainly power generation, with 40 percent earmarked for export.
That's less than foreign companies had hoped for, and significantly lower than the 53 percent recommended by the government's Tzemach committee -- the number proposed to foreign companies interested in investing in Israel.
The decision incensed political opponents. Labor Party chairwoman Shelly Yachimovich wants the Supreme Court to intervene so that parliament, not the cabinet, has the final say.
The cabinet's thinking was that with a 40 percent export cap, which could earn $60 billion, current gas reserves could supply Israel for at least 25 years.
However, energy economist Carole Nakhle of Britain's University of Surrey observed, "the export potential is fraught with problems, given the complex political make-up of the region.
"If Israel has a 'normal' relationship with its neighbors, an efficient option would have been to connect to the existing network of pipelines, sell the gas regionally and send the rest to Turkey and from there reach out to the Europeans.
"But," she noted, "because of the prevailing political climate, other more expensive and complex options, such as an offshore floating liquefied natural gas terminal, need to be considered."
Neighboring Lebanon, which technically is still at war with the Jewish state, claims that Israel's biggest field, Leviathan, extends into Beirut's exclusive economic zone. The dispute is before the United Nations.
Hezbollah, the Iranian-backed movement in Lebanon that fought a 34-day war with Israel in 2006, has warned it will not permit Israel to "plunder Lebanese assets."
There's been talk of building an undersea pipeline to Turkey's export terminal at Ceyhan, but that's problematic because of political problems between Israel and Turkey, which is currently grappling with growing internal unrest.
Turkey is dead set against Israel collaborating with neighboring Cyprus, which also is moving toward an offshore gas bonanza, because the island is split between adversarial Greek and Turkish Cypriot zones.
"Many would argue that Israel is not, politically, an attractive destination for international oil and gas capital," Nakhle observed.
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